A Page From Japan's Playbook? Bernanke Proposes "Floor" Under MBS Market

"One of the widely criticized features of Japan's approach to its post-bubble crisis was that its regulators tried for some time to avoid the recognition of bank losses. In a deflationary environment, it was not clear how this would lead to a better ending, since with a flagging economy and no inflation to reduce the real (as opposed to nominal) value of the debt, there was no reason to expect the borrowers' ability to pay to improve. Thus, these dud assets would remain dud assets until some banks (occasionally) made large writeoffs, forcing others to at least whittle away at their dud loans, and a worsening of the downturn in the late 1990s and some financial firm failures finally forced the government to recapitalize banks."